From 1 July 2026, a new tax (Division 296) will be introduced to reduce concessional tax rates on superannuation earnings above $3 million. But how does Division 296 work, and are you affected?
What is Division 296?
Currently, income earned on superannuation balances is generally taxed at a headline rate of up to 15%. However, from 1 July 2026, individuals who have a total superannuation balance above $3 million will be subject to a higher tax rate on earnings in their superannuation accounts.
Broadly:
– Superannuation balances between $3 million and $10 million will be taxed at 30% on the percentage of earnings between $3 million and $10 million; and
– Superannuation balances above $10 million will be taxed at 40% on the percentage of earnings that exceeds $10 million.
The ATO will notify any individuals who are liable to pay any Division 296 tax, with those taxpayers given the option to either pay the tax directly or release the appropriate amount from their super fund. Remember, as Division 296 only applies from 1 July 2026, the first notices of assessment aren’t likely to be issued until the 2027-28 financial year.
So, Division 296 won’t apply to everyone?
In short, no. This new measure is expected to affect less than 0.5% of Australians with superannuation accounts in 2026-27; with the higher 40% rate for balances above $10 million estimated to affect less than 0.1% of Australians with superannuation accounts.
Importantly, this means that those with super balances lower than $3 million will keep being taxed on their super earnings at the current concessional rate of 15% (i.e. there is no change to current tax arrangements).
What happens if my super grows over time?
Both the $3 million and $10 million thresholds will now be indexed to the Consumer Price Index (CPI) each year. This means the application of Division 296 should remain relatively limited, even if your superannuation balance increases.
What if I am affected by the changes?
If you’re in scope of Division 296, or expect to have a super balance above $3 million in the near future, there are a few actions you can take ahead of 1 July. For one, you may want to speak to a qualified financial adviser to review your investment mix. You might also consider modeling how Division 296 is expected to impact your super balance over the long term.
For a more bespoke chat about your options, book some time in with our team today – we’d be happy to help.
